Recently on our bankruptcy forum a user asked, “My wife and I have only lived in our house for four years. I lost my job three months ago and have not been able to find new employment. I don’t want to lose my house, but the bank is threatening foreclosure. Do you have any practical steps I can take to stop or delay the foreclosure?”
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A blogger on a bankruptcy forum website asked if it was OK to sign a Deed in Lieu of Foreclosure after the mortgage had been discharged in a Chapter 7 bankruptcy. He wanted his name off the rental property title because was unsure of his responsibilities with his name on the title.
Here are some advantages for both the lender and homeowner in doing a Deed in Lieu of Foreclosure:
Homeowner association fees occurring post bankruptcy are not discharged. As long as the homeowner has his or her name on the title of the property, they are responsible for the HOA fees. A Deed in Lieu of Foreclosure will legally transfer the name of the homeowners off the title so they will no longer be responsible for paying the HOA fees.
For the lender, filing a Deed in Lieu of Foreclosure is a much cheaper process. The costs for foreclosure are high in most states. Once a homeowner has had the debt discharged in bankruptcy, there is no advantage for the mortgage lender to go through the foreclosure process unless the homeowner remains on the property. If the homeowner has already vacated the premises or the property is rental property, then there is an advantage for the lender to gain control of the title as soon as possible.
Taxes normally go with the property, so whoever buys the property will have to pay the taxes unless the lien holder keeps them up to date. Taxing authorities can and have forced foreclosure on property to satisfy a debt on property taxes. A Deed in Lieu of Foreclosure places ownership taxing responsibilities squarely on whose name is on the Deed until the property sells.
Liability on the property is an issue that can hold the name or names on a title responsible if negligence is proven. It is a good idea to have liability insurance on the property until the title has been changed.
If you can get the lender to enter into a Deed in Lieu of Foreclosure, you can avoid much of the negative impact of foreclosure. You will be able to possibly purchase a home sooner than if you go through foreclosure.
You may be eligible for relocation assistance in some cases depending on the type of loan you have. You may even qualify to lease your home back through the Deed for Lease Option.
With a Deed in Lieu of Foreclosure, you can start building your credit back a little sooner because the foreclosure will not show up on your credit report.
These are just some of the advantages of using a Deed in Lieu of Foreclosure. These instruments are sometime hard to get a lender to agree to, though. The value of the home normally has to be close to what is owed on the home before they lender will agree, and they still have the upkeep, taxing, and insurance responsibilities to consider once the Deed in Lieu has been transferred. Most lenders willing to do this transaction normally have a buyer on the line before they will agree to it.
Ask your bankruptcy lawyer to help you if you are having problems with a bankruptcy discharge and a Deed in Lieu of Foreclosure.